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KLA-Tencor Preview: Will it Miss?

Zacks Equity Research

KLA-Tencor Corporation (KLAC) is set to report second quarter fiscal 2013 results on Jan 24. Last quarter, it posted a negative earnings surprise of 3.45%. Let’s see how things are shaping up for this announcement.

Factors to Consider this Past Quarter

Just like other technology companies, KLA has also been affected by the slump in the PC market due to a sluggish economy. The slowing end markets and caution at customers led to weak sales growth rates at KLA in the first quarter of 2013. Customers made the most of the existing inventory and maintained low utilization rates. Weaker volumes also impacted margins in the last quarter.

Orders declined across all customers, with foundries being the worst impacted. With the improvement in 28nm yields, the demand for process control equipment has declined, thus impacting foundry orders.

According to a recent report from Gartner, worldwide wafer fab equipment (:WFE) spending is forecasted to total $27 billion in 2013, a 9.7% decline from 2012 due to overall market weakness. We believe that significant growth in KLA’s business is not likely until semiconductor demand gains momentum.

Earnings Whispers

Our proven model does not conclusively show that KLA-Tencor is likely to beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method)and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 57 cents. Hence, the difference is 0.00%.

Zacks Rank #3 (Hold): KLA-Tencor’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a ESP of 0.00% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Yahoo Inc. (YHOO), with Earnings ESP of +14.82% and Zacks Rank #1 (Strong Buy)

Expedia Inc. (EXPE), with Earnings ESP of +3.64% and Zacks Rank #2 (Buy)

Amazon.com Inc. (AMZN) with Earnings ESP of +20.69% and Zacks Rank #3 (Hold)

Read the Full Research Report on YHOO

Read the Full Research Report on EXPE

Read the Full Research Report on AMZN

Read the Full Research Report on KLAC

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